Managing all aspects of household finances isn’t always easy for the average consumer, and one area where many make missteps is in dealing with their credit cards. Fortunately, some problems are more common than others, and are therefore easier to avoid as well.

One of the easiest ways consumers can see their credit card use turn problematic is in not properly budgeting for everyday spending on the card, according to a report from CBS MoneyWatch. The savviest consumers will only tap their credit card accounts when they have to buy something that they otherwise would not have the cash on hand to purchase. This may include larger purchases like appliances or other items for their home. But when it comes to everyday spending – a cup of coffee here, or lunch there – that’s where the outstanding debt can really add up. Instead, consumers should think about only paying for these common items with cash or debit so they don’t learn the perils of overspending the hard way.

[Free Resource: Check your credit for free before applying for a credit card]

Another common mistake consumers regularly make with their credit cards is using them to pay their other bills, the report said. While this is occasionally unavoidable given how financial emergencies have a tendency of cropping up unexpectedly and at the last minute, doing so regularly should be avoided at all costs. This practice is actually quite common during the first few months of the year because many opt to put their annual tax bills on their card, without realizing that doing so also incurs what can occasionally be a sizable “convenience” fee.

And one way many consumers look to reduce the risk of overspending on their credit cards is by using a rewards card – which many may view as giving them “free money” for spending they would do anyway, the report said. However, these cards typically come with higher interest rates and annual fees than no-frills cards, meaning that unless the balance is being paid off in full every month, borrowers may actually end up paying more to keep the card than they’re earning in points.

[Credit Cards: Research and compare credit cards at Credit.com]

The best advice a consumer can follow with regard to their credit card, though, is to use common sense. If a financial decision doesn’t seem to make much sense, it should probably be avoided.

Image: dingler1109, via Flickr

Let’s face it. When it comes to things like lottery jackpots, personal finance experts and writers tend to be wet rags. We usually put lottery ticket purchases in the same category of money sins as bottled water or spending $5 for a cup of coffee that can be brewed at home for 25 cents. But whom among us has never splurged for a one-pump mocha grande latte?

So what about lottery tickets? Do we really practice what we preach there?

[Credit Check Tool: Try Credit.com's Free Credit Report Card]

I decided to query some of my personal finance peeps to find out whether they’re not just a little tempted to sneak out to their local 7-11 and pick up a few tickets for today’s Mega Millions lottery jackpot. I didn’t think I’d find anyone trying to buy $700 worth in one pop like MTV celeb Rob Dyrdek allegedly did before the last drawing.  But I figured I’d find a least a few who like to play once in a while.

Fat chance.

Almost all of those who responded to my completely unscientific poll said they don’t play the lottery. Mary Hunt from DebtProofLiving.com was the most blunt: “Lottery tickets are a tax on stupid.” Neither does Credit.com credit card expert Beverly Harzog who says, “I’m not morally opposed to it at all, just kind of indifferent compared to the rest of the world. Really, it’s a matter of what I can spend time on right now. I’m such a numbers geek, I’d spend too much time trying to beat the system! ” Liz Weston also says she won’t be playing, “although I’m embarrassed to say I have in the past, because it really is a stupidity tax.”

David Bakke, a contributor for Money Crashers Personal Finance admits he’ll buy a few tickets: “I usually take a pretty frugal approach to money, and I’ve always been fairly anti-lottery. However, at $540 million, I figure it’s worth a shot.”

But he does have some lottery ticket stub skeletons in his closet.  ”Many years ago, buying lottery tickets was one reason why I fell into substantial personal debt. However, that was when I was much younger and much less mature.” Bakke now uses a personal rule of thumb to determine when he plays: “I only play once the jackpot goes over $300 million. That way, I know I’ll never fall into my old habits. Once it gets past this level, I buy three tickets. And I buy one more ticket every time it goes up another $100 million. Therefore, I’ll be buying five $1 tickets.”

Others shared their experiences with playing the lottery in the past. Steve Rhode of GetOutofDebt.org, who warns that money doesn’t always buy happiness, recalls, “I once bought some scratch-off tickets to demonstrate on a radio show that you are not likely to win anything. I won $100. Kind of screwed up the example.”

And J.D. Roth of GetRichSlowly says he won’t be buying a Mega Millions ticket, but he did buy scratch-off tickets once in a while back when he was still in debt.  “I was looking for a way to get rich quick. It was never a habit, though. Just a few times a year,” he notes, adding that he never won more than $50. For kicks, you may want to try the GetRichSlowly.org Mega Millions Lottery Simulator.

A Generous – and Cautious – Bunch

Both Rhode and Roth said that if they did win, they would use their winnings to fund projects they care about, though Rhode added he would splurge on at least part of it. “Why win it if you can’t enjoy it?” he asks.

Liz Weston suggested I check out Chuck Jaffe’s column about how lottery fantasies can help you plan your financial future.  ”Back when I did buy tickets, I dreamed about helping relatives…so I decided to do that. I wasn’t able to buy them new houses or cars, but I did help pay for some vacations and other goodies,” she says. “And that felt good.”

Hunt said her first expenditure would involve hiring a really good financial planner while Bakke offered the most comprehensive list of what he would do if he won:

1. Before I even claim the prize, I’d probably hire a lawyer to handle the media.
2. Quit my job.
3. Claim the prize.
4. Possibly hire a financial adviser, although I haven’t thought that one all the way through yet.
5. I would not take the lump sum. I could bank an additional $100 million by taking it in annual payments, so this is a no-brainer. Plus, with each annual payment being almost $14 million, who needs more than that?
6. I’d invest almost all of it. I’d give in to a few splurges here and there, but I’d invest at least 90% of it. Then, once the interest starts roiling in is when I’d make any major purchases. I’d buy a new car (not sure what kind), and take a trip around the world.
7. The remaining 10% would be used for gifts for family and possibly friends, and I’d also like to establish a foundation of some sort to help others that are less fortunate than me.

As for me? Many years ago, I had a one-year subscription to the lottery that automatically bought me one ticket per week. During the entire year, I won nothing. Zip, zilch, nada. That pretty much turned me off to playing. And even if I wanted to, I couldn’t sneak out and buy a Mega Millions ticket. They aren’t sold in my state.

Image: stopnlook via Flickr

Mary Hunt, an author famous for her book and newsletter “Debt-Proof Living,” is known for helping people get out of debt. But that doesn’t mean Hunt believes debt is necessarily bad. It’s all about having the right amount: Enough to build a decent credit rating, but not so much that it swamps your monthly finances.

[Credit Check Tool: Try Credit.com's Free Credit Report Card]

            ”We could flat-out ban borrowing money in our lives,” Hunt writes in her latest book, “7 Money Rules for Life“, “but that would be like the proverbial throwing the baby out with the bathwater.”

            Hunt’s seventh and last rule extends her well-known thriftiness to the world of credit. Hunt often advise people to buy less than they can afford, and the same rule applies to credit: Borrow less than you can afford, so that you have something in reserve in case of emergency.

Here’s an excerpt from chapter seven:

Given the number of people who lost their homes through foreclosure when the US housing market crashed, setting off the Great Recession, it would be easy to conclude that borrowing money to purchase a home is way too dangerous, fiscally foolish, and to be avoided.

We could take a similar stance on financing a car or taking student loans because automobiles depreciate and there are no guarantees of jobs for college grads.

We could flat-out ban borrowing money in our lives, but that would be like the proverbial throwing the baby out with the bathwater.

I am grateful for a home mortgage. Without it, my husband and I would not have had a prayer of owning our home. And I don’t believe that financing an automobile is evil or that all student debt is toxic. Rule 7 insures you have a safety net when borrowing money.

[Free Resource: Check your credit for free before applying for a credit card]

Borrowing money and the debt that creates should be taken on rarely, and then dealt with swiftly. Debt should be a means to an end. Borrowing money is a financial tool that improves your life if dealt with intelligently, not emotionally.

Rule 7: Borrow only what you know you can repay.

When I use the word “know,” I do not mean with absolute certainty beyond a reasonable doubt know. I mean to know as in having a reasonable certainty based on credible information. Another way to put it would be “borrow only what you have a reasonable certainty based upon credible information that you can repay,” which seems awkward. So let’s stick with “know” in this rule, knowing that we know what it means.

The only way that you can know with a reasonable level of certainty that you can pay off a debt is to have the means to do so in reserve. That goes for every type of borrowing, every kind of debt. This is so important, I am going to repeat it: the only safe way to borrow money is to have a means to pay off the debt in reserve.

Credit Card Debt

Credit card debt is flat-out toxic. If you cannot pay the entire balance every month before the due date, so that you are never paying interest, stop using the accounts. Give the cards to a trusted friend or relative who will hide them for you. It’s that serious!

If you are carrying toxic credit card debt now, determine that you will pay it off quickly (in chapter 13 I will show you how to do this quickly and effectively). There are few things you can do that will burn a hole through your discretionary income faster than paying double-digit interest each month for stuff you bought that you probably don’t even have any longer.

[Credit Cards: Research and compare credit cards at Credit.com]

I want to show you just how toxic credit card debt can be. Let’s say that you are carrying a credit card revolving balance of $3,500, at an interest rate of 29.99 percent, and your minimum monthly payment is 4 percent of the outstanding balance. Even if you stop adding any new purchases to that account, it will take you 188 months (that’s 15.6 years!) to be rid of that debt. In that time, you will pay $5,429 in interest. Another way to look at it, $3,500 grows to $8,929 by the time you pay it off. That is the true cost of toxic credit card debt.

As horrific as the foregoing example is, it’s too kind for this reason: the typical person who carries this kind of credit card debt is not likely to go for 15.6 years without adding a single purchase. During that time, something will come up and the cardholder will slip just one more meal, another pair of shoes, or even a well-deserved vacation onto that account, turning it into a lifetime of toxicity.

Credit cards can be seductive with all of the rebates, cash back, and mileage points. The industry has done a great job at making us believe that carrying some toxic debt is not a problem. But it is. And it is very foolish to carry debt because you wanted to get the miles. Or to buy something on credit to get 2 percent cash back. It makes absolutely no financial sense to pay 29.99 percent on an item you can afford to buy outright because you wanted to get 2 percent cash back on the purchase price.

[Featured Products: Compare credit score, report, and monitoring plans at Credit.com]

It takes financial intelligence and personal discipline to keep a credit card account active (see chapter 9) without allowing it to become a toxic situation. But millions of people do, and so can you. It requires discipline and a full understanding of how credit card accounts operate.

If you liked that, be sure to check out this excerpt from chapter six.

These days, a large number of consumers are once again beginning to feel better about their finances and as a result, are looking for new credit cards.

But because of the way the recession reshaped consumers’ attitude toward credit card spending in general, many are looking for ways to cut the costs associated with these cards, and one way many are choosing to do that is with rewards cards. As a result of increased interest in these accounts, many lenders are also diversifying the various offers for their rewards cards.

[Free Resource: Check your credit for free before applying for a credit card]

Some now give consumers bonus rewards just for opening their accounts, and others incentivize certain types of purchases by giving them more cash back or points for spending in certain categories. For consumers who view these rewards they can receive for spending as they normally would as “free money,” it’s important to look deeper into these accounts before settling on one.

One of the best ways to do this is for them to examine their previous account use and determine what are normal repayment and card use habits. For example, those who tend to carry a balance from one month to the next will probably want to find a rewards credit card with the best possible combination of a strong rewards program and low interest rate. Of course, they should also try to figure out whether their spending habits will make it more difficult to see the benefit of these rewards, and if the card has an annual fee associated with it, the cost of that should be considered as well.

Further, because these accounts can incentivize certain types of purchases with rewards rates of double or even triple the usual numbers, consumers should also look at what they most often buy with their credit card. For example, if they typically use their card to pay for gas, finding a card that grants more points for gas purchases will likely make the most sense. Many cards reward grocery purchases in the same way, so those who tend to use their cards at supermarkets can likely find similar benefits.

[Credit Cards: Research and compare cash back credit cards at Credit.com]

Of course, whenever consumers open new credit cards, they should examine how doing so will impact not only their debt, but other aspects of their finances as well. Each person’s financial situation is unique, and therefore it’s important to consider whether such a card is right for them.

Image: TommyClicks, via Flickr

While many consumers rely on their credit cards almost daily to increase their spending flexibility, these accounts often come with a number of other benefits consumers may not know about or don’t do enough to tap.

There are a number of benefits that can make credit card use more beneficial than paying by debit or cash, but in many cases, borrowers simply aren’t aware of them, according to a report from Investopedia. One of the most significant benefits a credit card provides to borrowers is that there is some amount of certainty about the quality of the product or service they purchase with their card. That’s because credit card companies allow for chargebacks. If something consumers buy with their credit card doesn’t live up to the billing and the company it was purchased from won’t refund the money, lenders sometimes can.

[Free Resource: Check your credit for free before applying for a credit card]

Along the same lines, many lenders automatically extend the return policies and warranties associated with products purchased using their credit cards, the report said. Further, some lenders also offer damage or theft protection within a certain amount of time after an item is purchased. These account features, too, will help to increase consumers’ confidence that they’re getting value for their money.

Some lenders now even offer price protection in the same way that many retailers do, the report said. That means if consumers buy an item for one price and find the same one for a lower price within what is usually a 60-day period, they will help to make up the difference. In some cases – lenders might even do this automatically through price assurance programs – though in MasterCard’s case, this option is only available for plane tickets on select airlines.

Further, in much the same way debit cards may allow users to receive some cash back when making a purchase, several lenders are now doing the same for credit cards, without applying the cash advance fees commonly associated with doing so, the report said.

[Credit Cards: Research and compare credit cards at Credit.com]

Of course, each credit card account is different, and therefore consumers who want to know more about the benefits they can receive will have to take the time to examine the terms of their lending agreement. Doing so will also have the added bonus of giving borrowers a better understanding of what their account costs them, as well as the best way to maximize the benefits of using the card.

Image: Images_of_Money, via Flickr